Bankruptcy

Are Bankruptcy Filings Highest at the Beginning of the Month?

By Bob Lawless

Courtesy of Automated Access to Court Electronic Records ("AACER") come new data about the U.S. bankruptcy filing rate throughout a month. From January 2007 through February 2008, the average daily filing rate for the first 14 days of the month has generally been higher than for the entire month. These data would suggest that bankruptcy filings tend to clump at the beginning of the month.

Before jumping to conclusions, it is important to note that these are only 14 months worth of data. The pattern, however, runs counter to the general trend of an overall increasing filing rate. Because the filing rate was increasing steadily over this time period, we generally would expect the latter part of a month to have more filings than the beginning. These data show the opposite and thereby further suggest the clumping effect may be worthy of further study. If bankruptcy filings do clump at the beginning of the month, the reasons for this clumping may help us understand the trigger of why people choose to file bankruptcy at a particular point.

Although the clumping may seem like it is coming at the beginning of a month, it may actually be an end-of-month effect. One thing to appreciate is that bankruptcy filings do not happen instantaneously at the moment someone first consults an attorney. In a completely unscientific survey this morning on the Bankr-L e-mail list (see signup instructions to the right), I asked bankruptcy attorneys for their estimate of the typical number of days that it takes for a routine consumer bankruptcy filing to occur from the moment of initial consultation to filing. Sixteen attorneys responded, and the median answer was about 12 days. Eight of the responses specifically mentioned the great variance in time, and five of the answers stressed that the date of the bankruptcy filing is often dependent on when the debtor can scrape together the money to pay the attorneys' and filing fees. In fairness, I should stress again that 12 days was only the median. The range was large, with two responses suggesting that the typical case took about six months from consultation to filing. The mode (or most common) response was 10-14 days.

If a routine consumer bankruptcy case actually starts with a visit to an attorney about 12 days before it was filed, then in many cases the beginning-of-month filings are coming from end-of-month visits to attorney offices. Is the end of the month when consumers can show up in attorney's office with a paycheck (and thereby the funds to file) and lots of unpaid bills? The conventional wisdom is that money tends to run out at the end of the month, but a consumer debtor who has decided to declare bankruptcy likely will not have been paying down his or her bills over the course of the month. Would this consumer be more likely to have a paycheck and thereby the means to file at the end of the month? Remember also that this scenario would not have to occur in every case or even in the majority of cases. If it was a recurring scenario that described many bankruptcy debtors, it would be enough to create the pattern we see with beginning-of-month filings.

Another thought occurred to me to explain the pattern and that was the means test. We know that people time their bankruptcy filing so as to minimize their past six-months of income and thereby pass the means test to qualify for chapter 7 bankruptcy. The problem with this explanation was that I could not see any reason why someone timing the means test would be more or less likely to consult an attorney at the end of a month or file bankruptcy at the beginning of the month.

At this point, I have as many questions as I have answers. Indeed, I really only have fourteen months of data. The pattern is strong and intriguing, however, and I thought it was worth pointing out. Comments, as usual, are open.

Full post as published by Credit Slips on March 18, 2008 (boomark / email).